What is Offshore Living Letter?

Offshore Living Letter is a publication of Live and Invest Overseas. Our goal is to provide timely, actionable information on all things offshore, including: how to go offshore, diversifying your portfolio, wealth creation, protecting your assets, and much more.

Why Most U.S. Asset Protection Plans Are Worthless

Why Most U.S. Asset Protection Plans Are Worthless

Battle-Ready Asset Protection

As an expert in asset protection—practicing as an attorney for 13 years and fighting too many battles to count—I can tell you with certainty that most asset protection plans are not worth the paper they are printed on.

In fact, the majority of asset protection plans sold in the United States today are scams marketed by fraudsters who have never been in a courtroom, have never gone to war, and have no idea how to properly protect your assets.

Some structures will segment your exposure in a limited sense, but won’t protect you against an extremely motivated plaintiff. Nor do they protect the asset in question.

Placing your U.S. rental real estate properties in separate U.S. LLCs, for instance, is a good start. It means that a personal injury claim should be limited to the value of the property held in the LLC.

Of course, a hostile litigant will find ways to pierce the veil of the LLC, get to other real estate in separate entities, go after your personal savings and home, and cost you a fortune in legal fees. It’s the high cost of defending an asset protection plan that brings most clients to the settlement table.

What about transferring property out of your name to an heir or spouse? This also works in smaller cases. But a quality adversary will claim a fraudulent transfer, keep you and your spouse in court for years, and generally cause havoc until he is paid.

Remember, no matter how much money you spend, or how many barriers you put up, a domestic asset protection plan can be dismantled by the judge presiding over your case. Also, contingency fee lawyers can bury you in paperwork until you pay them and their clients.

How To Set Up Your Asset Protection Plan

The only way to create an asset protection plan that is battle-ready is to include an escape route that leads offshore. A domestic plan may hold up to some scrutiny, and it may dissuade a creditor with a small claim who is not willing to spend the money to break down your walls, but the war is already lost if you come up against a quality opponent. You’re dead broke and just don’t know it yet.

Remember that a U.S. judge has control over any assets or property in the United States. While you can try to game the system with complex structures and transfers, the judge can do just about anything he likes. If you take the decision out of his hands, by moving your assets out of his reach and control, then you have the upper hand.

Offshore asset protection structures support domestic plans. Take the rental real estate LLC example above. The property held in the LLC is an easy target for the slip-and-fall litigant, and the purpose of the LLC is to limit your exposure to the value of the property it contains. If your plan includes an offshore trust, you might borrow against the real estate and transfer that cash to your trust, diminishing the value of the asset in the LLC and thus the size of the target.

The offshore asset protection plan will dissuade all but the heartiest creditors. It will make the cost of chasing your assets so high that no lawyer will take the case on contingency. While the offshore structure increases costs for those attacking you, it can reduce or eliminate your own legal bills.

You may decide, for example, not to fight the battle in the United States, and thus not pay a U.S. lawyer. Why not let the creditor get a judgment if there is nothing for them to take?

Along those same lines, your offshore asset protection plan will have a flight clause. This will allow you to move your assets, and your trust, from one jurisdiction to another. So, if someone does file a case in Nevis by putting up a $20,000 bond, let them spend money for a time and then move away. Once you relocate, they’ll need to chase you again, pay new council, file their claim anew, and generally be so frustrated that they’ll go away or settle for pennies on the dollar.

Any offshore asset protection plan must be implemented and funded prior to you having any issues. For example, if you set up and fund a trust today, and injure someone with your car tomorrow, your trust will hold. If you run over someone today, and form a trust tomorrow, it’s unlikely that your structure will be respected.

Battle-Ready Asset Protection

Offshore asset protection structures are not intended to protect you from the U.S. government. If you owe back taxes, back child support, or money to some other agency, then you must be cautious in selecting your offshore bank.

This limited protection is because the long arm of American “justice” can easily reach into any bank account in the States, even if it’s in a corporation or LLC. They can also access any account in Canada, France, or the UK. Finally, they can levy a foreign account if your bank has a branch in the United States.

For example, if you have an offshore trust with money in HSBC Panama, the U.S. government can issue a levy to HSBC NY to access that account. For this reason, I never recommend you use an offshore bank with a branch in the United States.

What about the case where you fund a trust after the liability is incurred? This is called a fraudulent conveyance and U.S. courts consider it a crime. A U.S. judge can hold you in contempt (in jail) until you bring the assets back under his control.

Of course, if you’re willing to abandon the United States and have a second passport in place, then you may have additional leverage not considered here.

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What is Offshore Living Letter?

Offshore Living Letter is a publication of Live and Invest Overseas. Our goal is to provide timely, actionable information on all things offshore, including: how to go offshore, diversifying your portfolio, wealth creation, protecting your assets, and much more.